2017 (7) TMI 201 - AT - Income Tax

Addition on account of difference in stock - existence of any pressure or coercion at the time of making surrender - Held that - No statement or affidavit of panch (witness) have been filed in support of pressure having been brought upon the assessee. In short, no evidence of existence of any pressure or coercion at the time of making surrender has been brought on record. The contention of the assessee that the surrender was made under pressure appears to be a mere statement with no basis at all. Once the statement has been given making a surrender, the presumption is that it has been given voluntarily without any pressure or coercion and while stating otherwise for retracting the same, the onus is on the assessee to prove so. Thus Admission made by the assessee, surrendering the excess stock, cannot be rejected as admissible evidence on this ground. Revenue has given no reason for adopting the GP rate of the immediately preceding year only i.e. 26% and we find no reason to adopt the same particularly considering the fact that the average GP rate of the preceding years comes to 20.48% and further GP rate accepted in this year is undeniably 22%. In such circumstances, we hold, it would be fair and reasonable to adopt the GP rate of the current year i.e. 22% for the purpose of calculating stock as per Books on the date of search. The retraction of the assessee is to this extent, therefore, accepted. The Assessing Officer is therefore directed to compute the difference in stock found on the date of search by calculating the stock as per Books by applying GP rate of 22% to the trading results of the assessee as on the date of search. The Gross Profit on the stock found short if any is also directed to be calculated after applying GP rate of 22% and addition is directed to be upheld of the same.

Summary

Issues Involved:
1. Retraction of Surrender
2. Addition on Account of Difference in Stock
3. Application of Gross Profit (GP) Rate

Issue-wise Detailed Analysis:

1. Retraction of Surrender:
The assessee contended that the surrender made during the search was under coercion and misunderstanding of facts and law. The Assessing Officer rejected the retraction, stating that the statement was given voluntarily without any evidence of coercion. The CIT (Appeals) upheld this view, noting that the surrender was made two days after the search and the retraction occurred 11 months later, weakening the case. The Tribunal agreed, citing the lack of evidence for coercion and the principle that admissions are important but not conclusive evidence. The Tribunal referenced the Supreme Court case of Pullangode Rubber Produce Co. Vs. State Of Kerala, which allows retraction if facts warrant it, but found the assessee's claims baseless and unsupported by evidence.

2. Addition on Account of Difference in Stock:
During the search, the stock found was valued at ?1,88,09,898/- against ?2,79,75,096/- as per books, showing a shortfall of ?91,65,198/-. The assessee surrendered this difference as unaccounted sales with a GP rate of 26%, amounting to ?23.92 lacs. The retraction was rejected by the Assessing Officer and CIT (Appeals), who found no evidence supporting the claims of stock being transferred to Jain Brothers due to family settlement. The Tribunal upheld this, noting that the family dispute was settled 7½ months before the search, and no documentary evidence was provided to support the stock transfer claim. The statement of Jain Brothers' proprietor also contradicted the assessee's claim.

3. Application of Gross Profit (GP) Rate:
The assessee argued that the GP rate of 26% applied by the Assessing Officer was excessive, suggesting an average GP rate of 20.48% based on past years. The Tribunal found merit in this argument, noting that the average GP rate over the years was 20.48% and the current year's GP rate was 22%. The Tribunal directed the Assessing Officer to compute the difference in stock using a GP rate of 22% for the current year, thus partially allowing the assessee's appeal.

Conclusion:
The Tribunal concluded that the assessee's retraction of the surrender was baseless and unsupported by evidence. However, it found merit in the contention regarding the GP rate and directed the Assessing Officer to apply a GP rate of 22% for calculating the stock difference and the corresponding addition. The appeal was partly allowed, modifying the addition based on the revised GP rate.